Previous Year Question
In which type of economy are resources privately owned and the main objective of economic activities is to earn profit?
Correct Answer: B
Detailed Solution
A Capitalist Economy is fundamentally characterised by private ownership of property and the means of production. Individuals and private enterprises make decisions regarding their economic activities, and resources are allocated primarily through the market mechanism. According to the IMF, capitalism is an economic system in which private actors own and control property, while demand and supply play a major role in determining prices in markets.
A major driving force behind production and investment in a capitalist system is the profit motive. Private producers decide what and how much to produce largely on the basis of market demand and the expected profitability of investment. Therefore, private ownership + market mechanism + profit motive are key characteristics of a capitalist economy.
In contrast, in a Socialist Economy, the state or collective ownership of major means of production has a larger role, whereas a Mixed Economy recognises the role of both the public and private sectors. NCERT describes India's economic structure as a mixed economy in which both public and private sectors operate.